Gifting is one of the most powerful tools in estate planning. By transferring assets during life, Washington residents can reduce the size of their taxable estate, provide support to family members, and create a legacy that takes effect right away. However, gifting without proper planning can create unexpected tax consequences or disrupt eligibility for important benefits.
At North City Law, our estate and gift tax planning lawyers work with clients throughout Snohomish County and beyond to design gifting strategies that comply with federal and Washington law.
If you want to explore whether gifting should be part of your estate plan, call us at 425-645-4684 to schedule a consultation.
What Is Lifetime Gifting and Why Is It Beneficial?
Lifetime gifting means transferring money, property, or other valuable assets during a person’s lifetime instead of waiting until death for heirs to inherit. Thoughtful gifting strategies can serve both practical and financial purposes.
Some of the most important benefits include:
- Reducing estate taxes: By giving away assets during life, the overall value of an estate is lowered. This helps minimize exposure to Washington’s estate tax, which applies to estates above $3 million in 2025, and can also reduce potential federal estate tax liability.
- Using annual exclusions: Federal law allows tax-free gifts up to $19,000 per recipient in 2025 ($38,000 for married couples) without requiring a gift tax return. These annual gifts can accumulate over time, making a meaningful impact on wealth transfer.
- Supporting family when it matters most: Lifetime gifts can help children or grandchildren pay for education, purchase a home, start a business, or cover medical costs at the time those funds are most needed.
- Transferring appreciating assets early: Gifts of assets likely to increase in value, such as business interests or real estate, shift future growth out of the taxable estate. This is especially valuable for owners of family businesses or rental portfolios in Washington.
- Establishing a living legacy: Gifting during life allows donors to see the impact of their generosity, whether it is helping family members achieve milestones or supporting charities and community organizations they care about.
When structured carefully, lifetime gifting provides immediate benefits to loved ones while also achieving long-term estate and tax planning goals.
What is One of The Primary Reasons for Gifting Upon Death?
One significant advantage of gifting during upon death is that the person receiving the gift will also receive the stepped-up basis for tax purposes, which will be equivalent to the value of the gift at the time the gift is made. Then, when the gifted property is resold in subsequent years, that taxable basis is only the difference between the value of the gift (or asset) when it was received and when the asset was sold.
As an example, suppose property is bought by a father for $10,000, the value of the property was given to a daughter upon his death 30 years later when the property was worth $500,000, and the daughter sold the property 10 years later for $800,000. The daughter would only need to pay capital gains tax on $300,000 (the difference between $800,000 and her $500,000 basis in the property). By contrast, if the father gave the property to his daughter during his life 10 years after purchasing when it was worth $200,000, she would owe taxes on a full $790,000 instead of just the $300,000 difference from when the father passed away in year 30.
What if I Would Like to Give up Control to Property During Life so my Family Member can Use it, But I Still Want to Gift Upon Death for the Tax Benefits?
Yes. Property such as land can be gifted during a person’s lifetime with restrictions on the land. For instance, in the above example the father could grant the daughter a life estate to the property for the duration of his life in year 10 and still go ahead with the gift upon death in year 30. This combination would allow the daughter to utilize the property in many ways as if she owned it from year 10 and the family would still enjoy the tax benefit in year 30.
How Do Federal Gift and Estate Taxes Apply?
The federal government imposes both an estate tax and a gift tax. While the two are linked, the system provides exclusions and credits that allow many families to transfer assets tax-free if planned correctly. Key features include:
- Annual Exclusion: In 2025, individuals can give up to $19,000 per recipient each year ($38,000 for married couples) without reducing their lifetime gift and estate tax exemption.
- Lifetime Exemption: The federal estate tax exemption is currently set at approximately $14 million per individual in 2025, but this amount is subject to change.
- Gift Splitting: Married couples can combine their exclusions, doubling the amount they can give without triggering tax.
Careful tracking is necessary because lifetime gifts count against the estate tax exemption. Our gift tax attorneys help families make full use of these exemptions without creating reporting issues or surprises at death.
How Does Washington’s Estate Tax Affect Gifting?
Washington does not impose a gift tax. Lifetime gifts are not added back to the Washington estate at death, so there is no state “clawback.” That makes gifting a powerful way to reduce Washington estate tax exposure.
For deaths on or after July 1, 2025, the Washington estate tax exclusion is approximately $3.0 million per person, with annual inflation adjustments beginning in 2026. Estates above the exclusion are taxed on a graduated schedule that now reaches 35% in the highest bracket. Because Washington still does not allow portability between spouses, unused exclusion at the first death is lost without planning.
What this means for gifting:
- Gifts during life reduce the size of the estate that will be measured against the Washington exclusion at death.
- Gifts do not reduce a person’s Washington exclusion, even if they are large or made shortly before death.
- Federal rules still apply to lifetime gifts, so larger transfers should be coordinated with the federal lifetime exemption and any required Form 709 filings.
Without a plan, estates that exceed Washington’s exclusion can face significant state tax even when no federal tax is due. Strategic gifting, coordinated with wills and trusts, helps keep the taxable estate below the Washington threshold and preserves more wealth for heirs. If you want to evaluate whether gifting makes sense under the new rules, call North City Law at 425-645-4684.
What Types of Assets Can Be Gifted?
Gifting strategies can apply to many types of property, including:
- Cash or investment accounts
- Real estate, including family homes or rental properties
- Business interests in family-owned companies
- Personal property such as art, jewelry, or collectibles
- Interests in trusts or other estate planning entities
The type of asset gifted affects both valuation and tax implications. For example, gifting business interests may allow discounts for lack of marketability, while gifting highly appreciated assets requires consideration of capital gains tax for the recipient.
How Does Gifting Affect Capital Gains and Taxable Basis?
One of the most important considerations in lifetime gifting is the impact on capital gains tax. When assets are gifted during life, the recipient generally takes the donor’s carryover basis in the property. This means that if the asset has significant unrealized capital gains, the beneficiary could face substantial capital gains tax when the asset is later sold. By contrast, assets that pass at death typically receive a step-up in basis to their fair market value at the date of death, which can greatly reduce or even eliminate capital gains liability for heirs.
This trade-off is especially significant for Washington residents, because while the state does not impose a gift tax, it does levy an estate tax on estates above $3 million (as of July 2025, indexed for inflation). Families must weigh whether gifting appreciating assets now makes sense to reduce estate tax exposure, even if it means heirs may later face higher capital gains tax. For some, removing the growth of high-value assets from the estate outweighs the potential income tax cost. For others, retaining assets until death ensures heirs benefit from the step-up in basis, preserving more after-tax value. Strategic planning requires balancing both federal income tax rules and Washington’s estate tax structure to achieve the most tax-efficient result.
What Are the Risks of Gifting Without a Plan?
While gifting offers many benefits, it also carries risks if not structured properly:
- Loss of control: Once a gift is made, the donor cannot reclaim it.
- Unequal treatment of heirs: Large gifts to some family members can create tension if not coordinated with overall estate planning.
- Impact on eligibility for benefits: Gifting can affect Medicaid or other needs-based programs if not timed and documented correctly.
- Tax reporting requirements: Even tax-free gifts may require filing a federal gift tax return (Form 709).
For these reasons, working with an estate and gift tax planning law firm ensures that gifts are both legal and strategic.
How Can Charitable Giving Play a Role?
Charitable giving is a valuable strategy for many Washington families looking to reduce both federal and state estate tax exposure while creating a lasting legacy. Under Washington’s updated estate tax law, estates valued above $3 million per person (effective July 2025, with annual inflation adjustments) are subject to state estate tax at graduated rates that now reach 35%. Charitable gifts can reduce the taxable estate below this threshold or lessen the overall tax liability.
Common approaches include:
- Direct charitable bequests through a will or trust, which qualify for an unlimited estate tax deduction under both federal and Washington law.
- Charitable remainder trusts (CRTs) that provide income to beneficiaries during their lifetimes and leave the remainder to charity, creating both an income tax deduction and a reduction in the taxable estate.
- Charitable lead trusts (CLTs), which direct payments to a charity for a set period before transferring the remainder to heirs, often at a reduced transfer tax cost.
- Donor-advised funds (DAFs), which allow a donor to claim an income tax deduction in the year of the gift while retaining flexibility to recommend how and when grants are made to charities.
These tools not only lower estate and gift tax exposure but also allow families to support causes that reflect their values. When structured carefully, charitable giving can preserve family wealth, reduce Washington’s steep estate tax liability, and ensure that resources are directed to meaningful community or philanthropic goals.
How Often Should a Gifting Strategy Be Reviewed?
Gifting strategies should be reviewed regularly, especially when laws change or major life events occur. Regular reviews ensure that annual exclusions are used efficiently and that gifts align with broader estate goals.
How Can North City Law Help With Estate and Gift Tax Planning?
At North City Law, we help individuals, families, and business owners create tax-efficient gifting strategies that fit into a complete estate plan. Our role is to explain the federal and Washington rules, prepare the necessary legal documents, and coordinate gifts with wills, trusts, and succession plans.
Our services include:
- Designing annual gifting programs to take advantage of exclusions
- Advising on large gifts that may affect federal exemptions
- Coordinating gifts of real estate and business interests
- Developing charitable giving strategies with tax benefits
- Reviewing and updating estate and gift tax plans as laws change
If you are considering lifetime gifting as part of your estate plan, call North City Law at 425-645-4684 today to schedule a consultation with an estate and gift tax planning attorney.